Coronavirus pandemic

The coronavirus pandemic has developed into a global economic crisis. Due to higher demand for certain telecommunications services, the impact of the crisis is being felt less severely by the telecommunications industry and Deutsche Telekom than by other industries. Business activities and thus the results of operations and financial position of Deutsche Telekom were impacted by the coronavirus pandemic in various business areas, affecting revenue and earnings, although not to any significant extent. Deutsche Telekom has put in place cost-saving measures to mitigate potential effects on earnings. At this time, we can report only very minor repercussions with respect to payment defaults and customer numbers. Even though there is still great uncertainty regarding the extent to which business activities and thus the results of operations and financial position of Deutsche Telekom could be affected overall in the future as the coronavirus pandemic unfolds, we expect, contrary to the forecasts published in the interim Group report as of June 30, 2020, that the Group’s adjusted EBITDA AL and free cash flow AL will grow faster than previously expected in the 2020 financial year. Possible future effects on the measurement of individual assets and liabilities are being analyzed on an ongoing basis. Possible factors could include the introduction of new travel restrictions, the closure of Telekom Shops, disrupted supply chains, further declines in roaming and visitor volumes, falling terminal equipment sales, or a drop in the number of new contracts being taken out. In addition, corporate customer business may decline further, for example, due to delayed or changed customer decisions. The possibility of an increase in the number of consumers and business customers defaulting on their payments cannot be ruled out either.

Deutsche Telekom has implemented a performance management system that uses EBITDA AL adjusted for special factors to calculate and record earnings performance in order to be able to make statements about the future development of the results of operations. The process for recording these special factors makes it possible to identify the expenses caused by the coronavirus pandemic in the consolidated income statement. In the first nine months of 2020, total such expenses of EUR 0.4 billion were recorded. These expenses relate almost exclusively to the United States operating segment, where they were recorded under cost of materials, personnel costs, and other operating expenses. While the results of operations of the United States operating segment were affected in the first half of 2020 by expenses recognized as special factors in connection with the coronavirus pandemic, these expenses were immaterial in the third quarter of 2020.

For further information on the performance management system, please refer to the section “Management of the Group” in the combined management report of the 2019 Annual Report.

For further information on the development of (adjusted) EBITDA AL/special factors, please refer to the section “Development of business in the Group” in the Group management report.